Explain how and why governments may want to regulate the price setting of a natural monopoly
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The monopolies have the power to set the prices higher in a market than in the competitive market.
Natural monopolies are industries where there is a high scale of economy and it cannot encourage any further competition. This is useful in preventing the abuse of monopoly power.
The government regulates monopolies by:
1. Price capping by regulators RPI-X
2. Regulation of quality of service
3. Merger policy
4. Breaking up of a monopoly
5. Yardstick or ‘Rate of Return’ Regulation
6. Investigation of abuse of monopoly power
Natural monopolies are industries where there is a high scale of economy and it cannot encourage any further competition. This is useful in preventing the abuse of monopoly power.
The government regulates monopolies by:
1. Price capping by regulators RPI-X
2. Regulation of quality of service
3. Merger policy
4. Breaking up of a monopoly
5. Yardstick or ‘Rate of Return’ Regulation
6. Investigation of abuse of monopoly power
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